Which is more important: To buy a home or own a home?
The answer naturally depends on one’s point of view. Real estate and mortgage brokers may argue that buying is paramount and owning is simply a byproduct. The argument makes sense because these pros don’t earn any income unless someone buys or borrows. On the other hand, the subprime borrowers who can no longer afford their mortgage payments might be ready to admit that buying really isn’t as golden as owning.
The disconnect between the two points of view is evident in the rising rate of loan defaults and foreclosures, some of which are no doubt due to such unexpected setbacks as divorce, disability or job loss, but others of which were the very foreseeable result of foolhardy financial decisions.
True, the loan products were complicated and disclosures weren’t as clear as they should have been. But a mortgage isn’t a credit card or car payment. It’s a long-term financial commitment, and, as has been so often said, it’s the biggest and most important financial decision most people will make in a lifetime.
Yet too many homeowners ignored the seriousness of the decision because they wanted to buy a home they needed to believe they could afford. Moreover, it’s a reasonable guess that not all the folks who’ve pled financial hardship are truly in trouble. How many of those who’ve defaulted have two late-model SUVs in the garage of the home they can no longer afford?
Of course homeowners weren’t entirely to blame:
- Investors and speculators turned up the volume on the idea that buying was better than owning. Building a portfolio of rental properties went out of style while a fresh coat of paint, spruced-up front yard and quick “flip” was the most profitable game in town.
- Lenders designed loan products that maximize short-term profits with no regard for borrower’s ability to pay back the principal and offered mortgage brokers higher incentives to sell those products.
- Mortgage brokers sold those most-profitable products to earn those higher incentives despite the obvious shortcomings of the products.
- Appraisers succumbed to pressure and abdicated their responsibility to prepare honest and impartial property valuations.
- And Realtors turned a blind eye to the poor-quality loans, greedy mortgage brokers, inflated appraisals and foolhardy home-buying decisions.
Of course, not everyone in the whole industry is culpable, but there were plenty of bad actors to create a pretty scary mess.
But the real problem is a shift in the psychology of home ownership. Owning a home and paying off a 30-year mortgage used to be laudable goals. But now, buying gets all the buzz at cocktail parties and around the water cooler.
Buying a first house is cool. Trading up to a pricier house is cool too. Borrowing is cool. Refinancing and turning equity into cash is even better. The ultimate cool is a low interest rate, even if the rate will spike a couple of years later and the monthly payment doesn’t cover the interest much less pay back any of the principal. Home buyers are now “consumers,” and buying a home is just another leisure activity in a society that has elevated shopping into a civic duty.
But owning? That’s so not cool. There’s just no buzz in a 30-year fixed-rate mortgage or in paying off that mortgage and still owning the same house 30 years later.
This new psychology of home ownership may seem frivolous or harmless, but that’s not the case. Those defaults and foreclosures are real individuals and families whose homes and financial futures are in peril.
Lenders have tightened their credit standards, which is long overdue, but not enough. What’s also needed is a reversal of the insane notions that a mortgage is just another form of debt and a home is just another consumer product.
Marcie Geffner is a real estate reporter in Los Angeles.
Copyright 2007 Marcie Geffner. All rights reserved. No part of this article may be used or reproduced in any manner whatsoever without written permission of the author.
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